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July 28, 2017
Facebook Q2 Earnings: 2 Billion and Counting

In the early days of McDonald’s, its signs indicated how many burgers it had sold at its restaurants. Eventually, the signs became too hard to keep up with and the phrase was shortened to “Billions and Billions Served” (and eventually dropped altogether).

If Facebook had a similar sign, they could now proudly flip from “more than a billion” to “more than 2 billion” as the company announced earlier this week that they have more than two billion active users. This is just on Facebook; they also announced they have crossed the billion mark with WhatsApp.

Facebook continued its strong track record of growth announcing that advertising revenue increased 47% in Q2 2017, but the most significant milestone of the quarter was that Facebook crossed over the 2 billion active user threshold.

Some of the highlights from the quarter:

Overall revenue increased 45% with advertising revenue growing 47%

Mobile advertising revenue grew at 53% and now represents 87% of advertising revenue

Average price per ad increased 24% and ad impressions increased 19%

Cap X increased 45% to $1.44 billion for the quarter as Facebook invests in data centers and infrastructure

Much like Google, growth here is attributable almost entirely to mobile. What is interesting is that while the average cost-per-click Google is able to generate is declining, Facebook is reporting that ad prices are increasing 24% — which is easily the highest rate of growth in the last two years for this metric.

User Growth

While the two billion threshold is certainly meaningful, it is important to note that this growth rate is steady at 17% y/y but varies quite a bit when you look by geography. In fact, Asia Pacific is not only the largest region of users but also is the fastest-growing at an accelerating 28%.

One dynamic that will be interesting to watch is that in terms of monetization per user APAC trails significantly. Facebook generated close to $20 per user in US and Canada but only $2.13 in APAC. Some of this is likely based on the amount of time and infrastructure built in the region but it is worth watching how effectively Facebook is able to monetize its fastest-growing region of users.

AI

Much like Google, Facebook continues significant investment in AI and highlighted some of the ways that advancements in AI are improving the overall user experience and ecosystem. For example, AI can better detect the types of content a user would prefer to see in their news feed as well as identify groups they would be interested in joining. Many of these improvements are incremental and ultimately result in software being more personalized to the user.

Mission

During the quarter Facebook announced that it was updating its mission to focus not just on connecting the world but to a new mission of “bringing the world closer together”. Facebook intends to do this by identifying communities at a local level and connecting like minded individuals. To this end, they set a goal of helping a billion people join groups that become a meaningful part of their life.

Mobile + Video

While the Facebook team fielded lots of questions from analysts about Messenger and how and when Facebook could monetize it, it’s important to point out that the key drivers of growth here are still mobile and video. Brands and retailers should be thinking “mobile video first” as they contemplate how to get in front of consumers.

Clearly, getting to the next billion users won’t be easy (if even possible). However, advertisers should capitalize on the large audience that Facebook and Instagram have in order to drive more brand awareness and, ultimately, product sales. After all, there aren’t many places you can find an audience as large and diverse as Facebook’s.